Introduction

The introduction of the Limited Liability Partnership Act, 2008 marked a significant milestone in the evolution of business law in India. Conceived as a hybrid form of business organization, the Limited Liability Partnership (LLP) combines the flexibility of a traditional partnership with the advantages of a body corporate. It provides partners with limited liability while allowing them considerable freedom to regulate their mutual rights and obligations through an LLP Agreement.

The popularity of LLPs has grown steadily among professionals, family businesses, start-ups and closely held enterprises. However, with this growth has come a corresponding increase in disputes between partners. Questions relating to exclusion from management, diversion of business, misappropriation of assets, denial of access to financial records, breach of fiduciary duties, and abuse of powers by designated partners are no longer uncommon.

Whenever such disputes arise, the first question generally asked by an aggrieved partner is whether he can invoke the jurisdiction of the National Company Law Tribunal (“NCLT”) in the same manner as a shareholder can under Sections 241 and 242 of the Companies Act, 2013.

The answer is neither straightforward nor entirely negative.

Unlike the Companies Act, 2013, the Limited Liability Partnership Act, 2008 does not contain an independent chapter dealing with oppression and mismanagement. There is no provision corresponding to Sections 241 and 242 empowering the Tribunal to regulate the affairs of an LLP, remove designated partners, appoint independent management, or otherwise grant wide-ranging equitable reliefs to aggrieved partners.

This legislative omission has often led to the misconception that partners of an LLP are left without any effective statutory remedy against oppressive or fraudulent conduct.

Such a conclusion, however, would be incorrect.

Although the LLP Act does not employ the expression “Oppression and Mismanagement” as a separate statutory remedy, the Act incorporates several provisions which collectively perform a similar protective function. Instead of conferring broad supervisory powers upon the Tribunal, Parliament has adopted a different legislative mechanism. Allegations of fraud, oppression, unfair prejudice or serious misconduct are primarily addressed through investigation into the affairs of the LLP, followed, where necessary, by prosecution, reconstruction, compromise, or winding up of the LLP.

The object of this article is to examine this unique legislative framework, analyse the jurisdiction of the National Company Law Tribunal under the LLP Act, and identify the practical remedies available to partners and designated partners confronted with oppressive or fraudulent conduct.

The Legislative Philosophy Behind the LLP Act

Understanding the absence of an oppression and mismanagement chapter requires an appreciation of the fundamental distinction between a company and an LLP.

A company is essentially a creation of statute. The relationship between shareholders and directors is governed predominantly by the Companies Act, 2013. Since shareholders ordinarily do not participate in day-to-day management, Parliament considered it necessary to confer extensive powers upon the Tribunal to protect minority shareholders against abuse of majority power. Sections 241 and 242 are therefore remedial provisions intended to preserve the company while simultaneously protecting minority interests.

An LLP, on the other hand, is founded upon a different philosophy.

Although an LLP is a body corporate, its internal management continues to be largely contractual. The rights, duties and obligations of partners primarily arise from the LLP Agreement rather than from detailed statutory provisions. Partners ordinarily participate in management, and the relationship among them resembles that of partners in a traditional partnership more than that of shareholders in a company.

The LLP Act deliberately recognises this contractual autonomy.

Instead of prescribing an elaborate statutory code governing internal disputes, the Act leaves most issues relating to management, profit sharing, admission, retirement, decision-making and dispute resolution to the LLP Agreement executed between the partners.

Consequently, Parliament did not consider it necessary to reproduce the comprehensive oppression and mismanagement provisions contained in the Companies Act.

This legislative choice does not indicate an absence of legal protection. Rather, it reflects a conscious policy decision that disputes among partners should ordinarily be resolved through contractual mechanisms, civil remedies, arbitration where agreed, or the ordinary law, while reserving the intervention of the Tribunal for exceptional cases involving fraud, public interest, oppression, unfair prejudice or circumstances warranting investigation or winding up.

Oppression and Mismanagement under the Companies Act, 2013

Sections 241 and 242 of the Companies Act, 2013 constitute one of the most significant minority protection mechanisms in Indian corporate law.

Where the affairs of a company are conducted in a manner oppressive to any member, prejudicial to public interest or prejudicial to the interests of the company itself, the affected members may invoke the jurisdiction of the National Company Law Tribunal.

The Tribunal enjoys extraordinarily wide equitable powers. It may regulate the future conduct of the company’s affairs, remove directors, appoint directors, modify or terminate agreements, restrict transfer of shares, direct purchase of shares, recover undue gains, or pass any other order necessary to bring an end to the matters complained of.

The emphasis of Sections 241 and 242 is therefore corrective rather than destructive. Instead of dissolving the company, the Tribunal attempts to restore fairness in corporate governance while preserving the business as a going concern.

No comparable powers are conferred upon the Tribunal under the LLP Act.

Does the LLP Act Provide an Equivalent Remedy?

The answer, in strict statutory terms, is No.

The Limited Liability Partnership Act, 2008 contains no provision corresponding to Sections 241 and 242 of the Companies Act.

The Tribunal cannot, under the LLP Act,

• regulate the future management of the LLP;
• remove designated partners merely because disputes have arisen;
• appoint administrators to manage the affairs of the LLP;
• compel one partner to purchase another partner’s interest; or
• otherwise exercise the extensive equitable jurisdiction available under company law.

The absence of such provisions, however, does not render the LLP Act ineffective.

Instead, the Act adopts an entirely different remedial structure.

Investigation as the Principal Statutory Remedy

The heart of the LLP Act’s protective mechanism lies in Sections 43 and 44.

Section 43 empowers the Central Government to appoint inspectors to investigate the affairs of an LLP where the Tribunal declares that such investigation is necessary, either on its own motion or on an application made by not less than one-fifth of the total number of partners.

More importantly, Section 43 expressly contemplates situations where the affairs of the LLP are being conducted:

• with intent to defraud creditors or partners;
• for fraudulent or unlawful purposes;
• in a manner oppressive or unfairly prejudicial to some or any of its partners; or
• otherwise in violation of the provisions of the LLP Act.

The significance of this provision cannot be overstated.

Although the LLP Act does not establish a separate oppression jurisdiction, Parliament has consciously employed the very expressions “oppressive” and “unfairly prejudicial” while defining the circumstances warranting investigation. These are the same concepts that have long formed the foundation of minority protection under company law.

Accordingly, while the Tribunal cannot directly grant the remedies contemplated under Section 242 of the Companies Act, it may initiate a statutory process capable of exposing fraud, abuse of power, diversion of assets and other forms of misconduct.

Section 44 – A Judicial Filter Against Frivolous Complaints

Section 44 complements Section 43 by prescribing the procedure for applications seeking investigation.

The applicants must satisfy the Tribunal that there exists sufficient material justifying an investigation, and the Tribunal may require security for investigation costs before directing further action.

The provision serves a dual purpose. It prevents frivolous or vexatious proceedings while ensuring that genuine allegations of fraud or oppression receive judicial consideration.

Investigation Is Not the Final Relief

One of the most important distinctions between the Companies Act and the LLP Act lies in the nature of the remedy.

Under Sections 241 and 242 of the Companies Act, the Tribunal itself grants substantive relief by regulating the affairs of the company.

The LLP Act follows a different sequence.

An investigation is merely the beginning of the statutory process.

If the investigation reveals fraud, unlawful conduct or serious misconduct, the report may form the basis for prosecution, recovery proceedings, compromise or reconstruction measures, or, where continuation of the LLP is no longer feasible, proceedings for winding up.

Thus, the statutory emphasis shifts from judicial management of the enterprise to statutory investigation followed by appropriate consequential action.

Winding Up on Just and Equitable Grounds

Where the relationship between partners has completely broken down, investigation alone may not provide an effective solution.

Section 64(f) empowers the Tribunal to wind up an LLP where it is of the opinion that it is just and equitable to do so.

This jurisdiction assumes particular importance in situations involving complete deadlock, persistent fraud, irretrievable loss of mutual confidence, exclusion from management or other circumstances rendering the continuation of the LLP impossible or inequitable.

Unlike Sections 241 and 242 of the Companies Act, which seek to preserve the corporate entity wherever possible, the LLP Act recognises that, in appropriate cases, the more equitable course may be to bring the relationship itself to an end.

Practical Consequences for LLP Partners

The absence of an express oppression remedy should not discourage an aggrieved partner from seeking legal redress.

Depending upon the facts of the case, the available remedies may include:

• proceedings under Sections 43 and 44 seeking investigation into the affairs of the LLP;
• compromise or arrangement under Sections 60 to 62 where restructuring is feasible;
• winding up on the just and equitable ground under Section 64(f);
• civil proceedings arising out of breaches of the LLP Agreement;
• arbitration where the LLP Agreement contains an arbitration clause; and
• criminal proceedings wherever the facts disclose offences such as fraud, forgery, criminal breach of trust or cheating.

The choice of remedy must necessarily depend upon the nature of the grievance, the terms of the LLP Agreement and the ultimate objective sought to be achieved.

Section 43 – The Closest Equivalent to an Oppression and Mismanagement Remedy

The absence of a separate chapter dealing with oppression and mismanagement under the LLP Act should not lead to the conclusion that Parliament has ignored the protection of minority partners. On the contrary, a careful reading of Section 43 reveals that the Legislature has consciously incorporated the very concepts that ordinarily form the basis of an oppression petition under the Companies Act.

Perhaps the most significant provision in this regard is Section 43(3)(c)(i), which authorises investigation where there are circumstances suggesting that the business of the LLP is being conducted—

• “…with an intent to defraud its creditors, partners or any other person, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive or unfairly prejudicial to some or any of its partners…”

These expressions—“oppressive” and “unfairly prejudicial”—are not accidental. They are the very expressions that have acquired a settled legal meaning through decades of company law jurisprudence relating to minority protection.

The Legislature has therefore recognised that, even in an LLP, situations may arise where one group of partners exercises its powers in a manner detrimental to the legitimate interests of another partner or group of partners.

The significant distinction, however, lies in the nature of the remedy.

Under Sections 241 and 242 of the Companies Act, the National Company Law Tribunal itself possesses extensive powers to regulate the affairs of the company and grant immediate equitable relief.

The LLP Act adopts a different legislative approach.

Instead of directly regulating the internal management of the LLP, the Tribunal may set in motion a statutory investigation, the outcome of which may ultimately lead to prosecution, reconstruction, compromise, or even winding up of the LLP.

Thus, while Section 43 cannot be described as an “Oppression and Mismanagement” provision in the strict sense, it undoubtedly represents the closest statutory equivalent available under the LLP Act.

Practical Situations in Which Section 43 May Be Invoked

The practical importance of Section 43 may be better appreciated through a few illustrations.

Diversion of Business by Majority Partners

Assume an LLP consists of three partners.

Two partners incorporate another LLP and gradually divert all profitable contracts to the newly formed entity. The minority partner is denied access to books of account, excluded from management meetings and prevented from participating in important business decisions. Annual financial statements are manipulated so as to conceal the diversion of business.

Although the LLP Act does not permit the minority partner to file an oppression petition under Sections 241 and 242 of the Companies Act, such facts may constitute sufficient grounds for seeking an investigation into the affairs of the LLP under Section 43.

Siphoning of LLP Assets

Consider another situation where the designated partner transfers LLP funds to entities controlled by his relatives, creates fictitious invoices, withdraws substantial amounts without authority and misappropriates LLP property for personal benefit.

These allegations involve not merely breach of fiduciary duties but may also disclose fraud and unlawful conduct. Depending upon the facts established, Section 43 may be invoked to seek investigation into the affairs of the LLP, apart from any civil or criminal proceedings that may independently arise.

Complete Breakdown of Mutual Confidence

A third situation frequently encountered in closely held LLPs is complete deadlock among partners.

• Business decisions cannot be taken.
• Meetings become impossible.
• Partners no longer communicate with one another.
• The LLP virtually ceases to function.

In such circumstances, an investigation alone may not adequately resolve the dispute.

Where continuation of the LLP becomes impossible because of the complete breakdown of mutual trust and confidence, the appropriate remedy may ultimately lie in seeking winding up of the LLP on the just and equitable ground under Section 64(f).

These illustrations demonstrate that the remedies under the LLP Act depend less upon the terminology employed by the parties and more upon the true nature of the misconduct alleged.

Emerging Judicial Developments

Although judicial interpretation of Sections 43 and 44 of the LLP Act is still evolving, recent decisions provide useful guidance regarding the scope of the Tribunal’s jurisdiction.

(A) Anirudh Kumar v. Hydraulics and Pneumatics India LLP (NCLAT, 2025)

One of the earliest appellate decisions dealing directly with Section 43 is Anirudh Kumar v. Hydraulics and Pneumatics India LLP.

The National Company Law Appellate Tribunal examined the requirement under Section 43(1)(a) that an application for investigation ordinarily be made by not less than one-fifth of the total number of partners. The appellant contended that even where the statutory numerical requirement was not fulfilled, the Tribunal could nevertheless consider the allegations and, where appropriate, exercise its suo motu jurisdiction to direct an investigation.

Although the decision primarily concerns procedural requirements, it assumes considerable significance because it recognises the independent jurisdiction of the Tribunal under Section 43 and highlights the distinction between applications initiated by partners and investigations directed by the Tribunal on its own motion.

(B) Hiran Valiyakkil Lal v. K. V. Sreeja (NCLT Kochi)

Another important development is the litigation in Hiran Valiyakkil Lal v. K. V. Sreeja, arising from disputes within an LLP.

Although the proceedings principally concerned winding up under Sections 63 and 64 of the LLP Act read with Rule 26 of the LLP (Winding Up and Dissolution) Rules, 2012, the case illustrates an important practical principle.

Where disputes between partners reach a stage at which the LLP can no longer function because of complete breakdown of mutual confidence, the absence of an express oppression remedy does not leave the parties remediless. In appropriate cases, the Tribunal’s jurisdiction to order winding up on the just and equitable ground may provide the appropriate statutory remedy.

For practitioners in Kerala, this decision is likely to assume particular significance in future LLP litigation before the Kochi Bench.

Comparative Position under the Companies Act and the LLP Act

The distinction between the two enactments may conveniently be summarised as follows:

This comparison demonstrates that the two enactments adopt fundamentally different legislative philosophies despite addressing similar governance concerns.

Practical Guidance for Partners and Designated Partners

An aggrieved partner should carefully identify the true nature of the dispute before initiating legal proceedings. Different categories of disputes require different statutory remedies.

Selecting the correct remedy at the outset is often critical. A dispute that is essentially contractual may not warrant invoking the Tribunal’s investigative jurisdiction, while allegations involving fraud, diversion of assets, or oppressive conduct may justify recourse to Sections 43 and 44. Careful evaluation of the facts, the LLP Agreement, and the relief ultimately sought is therefore indispensable before initiating proceedings.

Conclusion

The Limited Liability Partnership Act, 2008 does not reproduce the elaborate statutory machinery relating to oppression and mismanagement found in the Companies Act, 2013. This omission, however, should not be mistaken for a legislative vacuum. It reflects a conscious policy decision to preserve the contractual autonomy of partners while conferring limited but significant supervisory powers upon the National Company Law Tribunal in cases involving fraud, oppression, unfair prejudice and governance failures.

The statutory scheme of the LLP Act demonstrates that Parliament has adopted a different remedial philosophy. Instead of empowering the Tribunal to regulate the internal management of an LLP on a continuing basis, the Act relies upon investigation, statutory intervention and, where necessary, winding up on just and equitable grounds as the principal means of protecting partners and preserving the integrity of the LLP structure.

For partners, designated partners and legal practitioners alike, an appreciation of this distinction is essential. The remedies available under the LLP Act may be narrower in form than those under the Companies Act, but they are by no means illusory. Properly invoked, they provide meaningful legal protection against fraud, oppression and serious misconduct within a Limited Liability Partnership.